Does Indian IT Sector Face Existential Threat from AI? Nuvama Says No, Sees $400 Billion Opportunity by 2030

Indian IT stocks could be poised for a recovery as enterprises accelerate the adoption of artificial intelligence (AI) from experimental pilots to large-scale business deployments, according to Nuvama Research. While the brokerage expects some near-term volatility, it remains constructive on the sector’s medium- to long-term outlook.

Following a stable operational performance in the first quarter of FY27, Nuvama expects growth momentum to strengthen in the second quarter as several large contracts begin contributing to revenues.

“We do not see any existential threat from Gen AI, but do believe that in the near-term IT Services firms shall face cannibalisation of revenue (which they are facing currently) before they reach inflection point,” the brokerage

said.

According to Nuvama, generative AI is likely to temporarily weigh on traditional IT services revenues as automation reduces the effort required for certain technology functions. However, the brokerage believes this transition will ultimately create a much larger opportunity for the industry rather than disrupt it.

It estimates that Gen AI could expand the total addressable market (TAM) for IT services to nearly $300-400 billion by 2030, as enterprises increasingly invest in AI-led digital transformation.

The positive outlook comes as AI adoption is moving beyond proof-of-concept projects into production-scale deployments. Companies are now focusing on achieving measurable productivity gains and business outcomes from their AI investments instead of simply experimenting with the technology.

During Q1FY27, leading Indian IT firms such as Tata Consultancy Services (TCS) and HCLTech secured several large AI-driven contracts. Nuvama expects the pace of such deal wins to increase as enterprises scale up their Gen AI initiatives.

The brokerage noted that large enterprises are increasingly engaging IT service providers to build application layers over multiple large language models (LLMs). Such architectures enable businesses to switch between different AI models while optimising token costs, a capability that is expected to see rising demand over the coming quarters.

Nuvama also expects the September quarter to be stronger for the sector. Companies such as TCS and Mphasis have already indicated a better second quarter, while Infosys and HCLTech are expected to benefit from seasonal demand as well as the ramp-up of large client engagements.

The brokerage said Q1FY27 revenue growth broadly met expectations, while operating margins were either in line with or ahead of estimates for most companies. Growth was supported by large deal ramp-ups, vendor consolidation and sustained demand for AI and cloud-related services.

At the same time, discretionary technology spending remained selective, with clients continuing to take longer to finalise spending decisions.

Nuvama also highlighted that global technology spending is increasingly shifting towards AI infrastructure, cloud computing, software-as-a-service (SaaS), infrastructure-as-a-service (IaaS) and AI-agent technologies, opening up new growth avenues for Indian IT firms.

“Macro uncertainty and geopolitical volatility continues, though tech demand remains healthy, led by AI infra, cloud adoption and hyperscaler investments. Managed Services remained muted but positive, with BPO rebounding while ITO and ER&D softened,” the brokerage said.

Beyond Gen AI, Nuvama expects Indian IT companies to benefit from improving deal execution, a healthy pipeline of large contracts and continued vendor consolidation across global enterprises.

Despite these positives, the Nifty IT index has fallen 16.93% so far in 2026, reflecting concerns around macroeconomic uncertainty and the near-term impact of AI-led disruption. However, Nuvama believes the recent correction has created an attractive entry point for long-term investors.

“After the sharp correction, we find valuations highly attractive,” the brokerage said, while cautioning that volatility could continue in the near term.